Perceptive Advisors

Joseph Edelman doesn’t have a Ph.D. or M.D., but he made 30%+ annualized net return from 1999 to 2018, picking pre-commercialization biotech stocks. You know those that if it works, you are +500%, if not, you are -90%.

This is the story of Joseph Edelman and the premier biotech hedge fund he founded, Perceptive Advisors.

Joseph Edelman

Born in San Francisco in 1955, Edelman grew up in a household where science wasn't just dinner table conversation - it was the whole menu. His father, Isidore, was a biochemistry professor at UCSF and a member of the National Academy of Sciences. The expectation, presumably, was the son would follow into rigorous research.

He did not.

Edelman studied psychology at UC San Diego, then enrolled in a graduate psychopharmacology program at the same school. He dropped out after a few weeks. He didn’t have the patience for scientific research. What he did have — though he didn't know it yet - was a instinct for the way people form beliefs, change their minds, and price risk.

That instinct would make him a billionaire.

New York City

When his father was appointed the chair of molecular chemistry and biophysics at Columbia University, Edelman followed him to New York. He enrolled in the part-time MBA program at NYU Stern and, to pay the bills, worked as an assistant comptroller at Actors' Equity, the actors' union.

After his MBA in 1988, Edelman landed a sell-side research job at Labe, Simpson & Co. His first real test came in the form of Cambridge Bioscience, a company selling a five-minute test for HIV. Having written his MBA thesis for a biotech research analyst, he knew enough to know this idea was weak and concluded it would not sell well.

He rated it an immediate sell - the lone bear on Wall Street. And his estimates were way below the two other sell-side analysts. When the company missed earnings, the other two analysts cut their numbers - but not enough, because they anchored to their original optimism. Consensus stayed elevated. The company kept missing numbers.

Eventually the company went bankrupt, and the CEO and CFO went to prison for fraud. Edelman had been right from the beginning, and he had held the line while the rest of the Street slowly, reluctantly updated.

That bold stock call opened the door for him to Prudential Securities, a major shop. But Edelman struggled there. The sell-side isn't designed for someone who thinks in probabilities and changes his mind as new information arrives.

What he really wanted was to run money. So he went to the buy-side.

Building Perceptive

Edelman got his first buy-side gig at Paramount Capital Asset Management where he worked as a Senior Analyst for a biotech hedge fund called Aries Fund.

After Aries, he worked at the prop trading shop First New York where he was given $6 million to trade.

In less than a year, after raising $3.5 million from friends and a hedge fund manager, Edelman stated Perceptive Advisors in 1999 with $6 million.

More to come:

• Three questions a biotech investor needs to answer
• What Edelman means by "repeated surprises"
• How does Edelman think about position sizing
• Why does Perceptive own 200+ positions?
• A case study on how Edelman pressed an executive to gain conviction